Investors should not panic about the current or any other cryptocurrency "dip" or "dump". As it is fairly new and largely unregulated, cryptocurrencies are more vulnerable to market fluctuations than more established securities. But looking at what we've seen in the past year alone, this volatility has been common. Cryptocurrencies have proven to be a tremendously popular and profitable investment for those shrewd enough to get in on the ground floor. It's important to remember that while these ups and downs are inevitable, there's no such thing as a perpetual drop.
And recently, a lot and I mean A LOT of cryptocurrencies had their major "dump". And oh boy, a lot of investors posted online, showing their panic attacks and how they are scared of what is happening.
Now I want to tell you why you should not worry about this type of event. Especially if you are looking at HODL-ing your coins for a long period of time, or you are on long-term cryptocurrency investment.
You see, I learned a thing or two about managing money, in my days of stock trading. And there's one thing I learned that always stuck with me, and that is: The market can have minor corrections every now and then. But a crash? That is extremely rare. Just look at the history of the stock exchange, did we ever have a 1-2 years long crash? No. We had minor dips yes. Even in the GFC, it was only big dips for 1-2 weeks max (like a 50% market drop). And that's because Bitcoin, Ethereum, and other cryptocurrencies are not related to the stock market.
But still, all of these "dips" or "drops" of different cryptocurrencies seem to be so interconnected with one another. They all have the same characteristics and this is what makes me think they are connected. You know why? Because they were all created from a similar issue, and it is the liquidity problem.
The Cryptocurrency Difficulties
So you may ask: "DeeBeeGee, what do you mean by liquidity?" Well, the thing I like to keep in mind when I'm investing my money, or trading in any field for that matter, is risk versus reward. And it's one of the most important factors that can affect a person's decision-making.
What I mean by liquidity, is simply how easy it is to trade your currency back to fiat. Or better said, if you are holding in an investment for a long time period, you want to know how fast you can get your money back out for a large amount of profit. Think of it this way: If you were Bitcoin mining in 2010 and mined 1 Bitcoin, and thought: "Screw this investing stuff, I'm gonna get rich!". You could go on the exchange then and exchange 1 Bitcoin for $0.001 USD. Now imagine you mined 1 Bitcoin and all of a sudden it's skyrocketing so that a year later you would mine 1000 Bitcoins and exchange it for $10 USD. What would have happened to your 1000 coins? They would be worth $10,000 USD! If you had 1 BTC back then, it's crazy how much money you could make in such a short time period.
The problem with this method is that the more money you make, the less incentive there is to mine the coin in the first place. And this is what happens with cryptocurrency. When Bitcoin started, you could mine a lot of BTC's in the beginning and there were very few miners. So people thought: "I'm gonna mine this shit out of nowhere!". And with time, the number of miners increased, so that now it is extremely hard to mine Bitcoin for smaller and smaller profits (which still are a lot more than most other altcoins).
Now I don't want to talk about the pros or cons of how the cryptocurrency difficulty should be handled, but I just want to say something that often gets left out by fewer experienced investors - you need to know how much money you're investing in something specific. You can't just think everything will get better because the price of your coins has gone up.
So you ask, how you're supposed to know that? Well, that is the biggest problem with cryptocurrencies. You see, when you buy a stock in a company, you know exactly how much money went into it and are getting out of it. You buy shares in Apple for $100 and they give you 1 share (stock) of Apple. Then let's say Apple is worth $200 now but only gives you 0.1 shares (stock) per share. You paid $100 for your stock, and now you can sell it for $200. It may sound confusing, but if you know what I'm talking about, you see that the price is not the important factor in this equation. The amount of money you get out of it is much more important. That's why I'm saying cryptocurrencies are more market-sensitive than other forms of investment.
So as a cryptocurrency investor, you want to make sure that these fluctuations do not affect your wallet too much and that there will be buying opportunities where you can quickly sell back to fiat without major losses. And this is where the liquidity problem is coming from. Let's say you own 1 Bitcoin and want to sell it, but there are no buyers and you're stuck with this Bitcoin for another year. You would have to wait until the price goes up or you need your money back and hope that a buyer will buy it from you at a high price. Or maybe use an altcoin exchange (if your coin has enough of a market cap) to quickly convert it back to fiat but lose a lot of money doing so. The first option is what these "dips" are trying to solve, but does not always work out in reality. This where the problem arises.
Now let's look at this chart of the top 10 cryptocurrencies by market cap.
From this, it is very clear that not every single cryptocurrency is a good investment at this time. Cryptocurrencies like Dogecoin or Bytecoin are inflated to insane levels because they have had their pumps and now are sitting stagnant in price, whilst some other big guys like Litecoin and Bitcoin Cash don't show much activity at all. So if you don't know exactly what you're investing in, you will be uncomfortable with this chart. You may be wondering - how the hell do I know what I should invest in? Well, that is very similar to the same question that most people ask when they buy a stock. You have to know exactly what you're investing in. Something that you feel is worth investing in and where you see potential growth. For example, if you are a "cryptocurrency investor" and believe in Bitcoin, then it will be hard for you to buy something like Dogecoin which has no real use-case because it is not "worth" $0.01 at all (except maybe as a Shib miner).
And now let's talk about the 5 top coins on this list and see why they are worth holding for now...
1. Bitcoin - Yes, Bitcoin has been in a bear market for a while now and it is due to hit new all-time highs during the coming year. I believe this is because we have seen the peak in the FOMO phase with ICOs, but not necessarily the peak of actual usage of cryptocurrencies. There are still many people that do not see the potential of bitcoin, and that is why we will continue to see this momentum rise as more and more people adopt it. The way I see bitcoin going in 2021 is very similar to what Google did between 2004 and 2011 when it was the only search engine on the internet or what Facebook did as it took off when MySpace was still big (no disrespect MySpace).
2. Litecoin - I like Litecoin more than Bitcoin because the value of LTC is much more stable than BTC. Bitcoin is valued based on its "intrinsic value" as a store of value. That means its price could be driven up or down by other factors. While this is a very good thing in the short term, we are starting to see that even when there were not many people invested in BTC, it was still able to thrive as the fair market value of BTC is much more stable than other coins. A stable valuation has a much higher potential for growth compared to a volatile valuation which can be very volatile at times. In my opinion, this makes Litecoin the best coin for long-term holdings.
3. Noise Level: BTC stands out even more because of the amount of noise around it. I know that when BTC first started, people believed in it more than any other coin due to the amount of noise surrounding it and the fact that bitcoin was "the one". We've since seen many altcoins emerge which have done very well, but they're not nearly able to get as much attention as a new altcoin like doge is when tumbled down. They are most likely not going to be as big or go as far in order to compete with BTC. Lastly, I personally love being able to play with my investments and live off the gains. It still has the highest trading volume and is still the biggest market. Even if you're a big bag holder of say 100 BTC, it's nice to be able to sell it all one day if you need your money. That's something you can't do with LTC or ETH etc.
4. EOS - EOS went big in 2018 and probably will become a top coin after all of this settles down. They will have the ability to actually compete with Ethereum directly as a platform (big difference). As more people learn about EOS and see how it will make the process of building dApps much more accessible and with the ability to compete with Ethereum in terms of tech, it will be huge.
5. Ethereum - Even after the ICO craze has died down, Ethereum is still going to be one of the top coins out there for a while. The platform and technology that ETH offers are very valuable (upgrading smart contracts that can work with any coin) and some other coins can't compete with that (even when Shib was released). Its built-in programming language is also something that can help devs build out their vision on a blockchain easily without having to program everything from scratch just like every other coin does now. It has a small community and it is still going up. Even if you don't hold Ethereum, many other coins are built off of it and are being bought and sold on exchanges with ETH so you can see how much its value could be affected by these "dips".
So that's it, guys!
What do you think? Do you have any questions or comments? Let me know in the comments below! Peace out!
FOMO Moments is a series focusing on specific coin movements that I find interesting. It's essentially looking at a world of possibilities with the potential of visiting someone's mind in order to create intense analysis.
IMAGE REFERENCE:
Coinmarketcap.com
https://polygant.net/blog/cryptocurrency-pump-and-dump/
Its so good article